Yen Soars With Falling Yields, Sterling Resilient

Yen rises broadly in quiet trading today, with help from falling US and European benchmark yields. Sterling is following as next strongest, and then Kiwi. On the other hand, Swiss Franc is the worst performer, followed by Dollar, Canadian. Euro and Aussie are mixed for the moment. As the US markets are on holiday today, trading could turn more subdued.

Technically, CAD/JPY takes the lead by breaking through near term support at 104.06 to resume the whole decline form 110.87. It’s currently in correction to rise from 84.65 to 110.87. Deeper fall is expected as long as 105.79 resistance holds. Next target is 101.39 cluster support (38.2% retracement of 84.65 to 110.87 at 110.85.

In Europe, at the time of writing, FTSE is up 0.01%. DAX is up 0.61%. CAC is 0.22%. Germany 10-year yield is down -0.077 at 1.856. Earlier in Asia, Nikkei rose 0.95%. Hong Kong HSI rose 0.78%. China Shanghai SSE dropped -0.25%. Singapore Strait Times dropped -0.10%. Japan 10-year JGB yield rose 0.0043 to 0.249.

ECB accounts: Clear that rates would need to be raised further

In the accounts of ECB’s October 26-27 meeting, it’s noted that the 75bps rate hike was “supported by a very large majority of members” with “a few members expressed a preference” for just 50bps.

Still, with a 75bps hike, it was also “clear that rates would need to be raised further to reach a level that would deliver on the ECB’s 2% medium-term target”. In light of “prevailing uncertainties”, there was broad support for a “meeting-by-meeting, data-dependent approach” to taking monetary policy decisions.

BoE Ramsden: Further increases in Bank rate are going to be required

BoE Governor Dave Ramsden said in a speech that regarding the immediate outlook for the economy and policy, “some near term sources of uncertainty have eased but others remain.”

“Because of the Government’s Energy Price Guarantee there is more certainty about the outlook for energy prices and Government policy more broadly is on a more stable and predictable footing…. The labour market remains tight and services inflation has hit 30-year highs and is contributing more to overall inflation”.

“I am not yet confident that domestically generated inflationary pressures from increased costs and firms’ pricing pressures are starting to ease. Encouragingly survey and market based medium term inflation expectations have fallen back from their peak, though they remain elevated.”

“Assuming that in the near term the economy evolves broadly in line with the latest MPR projections and given my assessment of the balance of risks, then I expect that further increases in Bank rate are going to be required to ensure a sustainable return of inflation to target.”

Germany Ifo rose to 86.3, recession could prove less severe than expected

Germany Ifo Business Climate rose from 84.5 to 86.3 in November, above expectation of 85.0. Current Assessment Index rose from 84.2 to 93.1, below expectation of 93.6. Expectations Index rose from 75.9 to 80.0, above expectation of 77.0.

By sector, manufacturing rose from -15.4 to -11.7. Service rose from -8.5 to -5.4. Trade rose from -31.9 to -26.9. Construction rose from -24.0 to -21.6.

Ifo said, “While companies were somewhat less satisfied with their current business, pessimism regarding the coming months reduced sharply. The recession could prove less severe than many had expected.”

RBNZ Orr: We are officially contractionary with monetary policy

RBNZ Governor Adrian Orr told a parliamentary committee, “We can all put our hands on our hearts across the committee and say we are officially contractionary with our monetary policy at this point.”

“We need to get actual and expected inflation down,” Orr said. “The committee agreed that we need to reach a higher level Official Cash Rate sooner than previously anticipated.”

“It is the misery of inflation that is the problem here and that is the problem we are working to resolve,” Orr said.

“Our biggest surprises since August has been the persistence of global inflation… and domestically we are seeing price pressure everywhere,” said Orr.

Japan PMI manufacturing dropped to 49.4, services down to 50

Japan PMI Manufacturing dropped from 50.7 to 49.4 in November, below expectation of 50.7. That’s the first contraction reading since January 2021. PMI Services dropped from 53.2 to 50.0. PMI Composite dropped from 51.8 to 48.9.

Laura Denman, Economist at S&P Global Market Intelligence, said:

“Activity at Japanese private sector firms declined for the first time in three months, according to November flash PMI data. Central to the latest downturn was a poor performance at Japanese manufacturing firms. Cooling demand conditions and acute inflationary pressures reportedly continued to hamper output and new orders… Meanwhile, services firms signalled no change in activity levels from the month prior.”

USD/JPY Mid-Day Outlook

Daily Pivots: (S1) 138.64; (P) 140.12; (R1) 141.08; More…

Immediate focus is now on 137.66 support in USD/JPY with today’s decline. Firm break there will resume the whole fall from 151.93, as a correction to the larger up trend. Next target is 100% projection of 146.78 to 137.66 from 142.24 at 133.12, which is close to 133.07 medium term fibonacci level. Meanwhile, outlook will stay bearish as long as 142.45 resistance holds, in case of another recovery.

In the bigger picture, a medium term top should be formed at 151.93. Fall from there is correcting larger up trend from 102.58. It’s too early to call for bearish trend reversal. But even as a corrective move, such decline should target 38.2% retracement of 102.58 to 151.93 at 133.07, or further to 55 week EMA (now at 130.28).

Economic Indicators Update